The Welsh Economy XIII: Employment & Skills

There’s no economy without people….or maybe not (Part XIV), but aside from economic growth, one of the key general measures of an economy’s health is employment figures and the skill levels of the workforce.

It’s an area that Wales is perceived to have big weaknesses compared to the rest of the UK. Is that true? How have things changed since devolution? As for the future of employment and work, that’ll be looked at in Part XIV.

Unemployment

While the unemployment rate has generally remained slightly higher in Wales than the UK average it’s rarely been more than 0.5% higher when averaged across a year and has, on a few occasions, actually been lower than the UK.

In fact, Wales has generally performed better in terms of unemployment than most English regions since 2009 and it was remarkable that the Welsh unemployment rate hasn’t hit double-figures since 1993-1994.

The unemployment rate will, naturally, vary across different parts of Wales. The Valleys were hit particularly hard after the Great Recession, with the unemployment rate exceeding 10% in Neath Port Talbot, Merthyr Tydfil, Blaenau Gwent, Torfaen and Caerphilly in 2010. There’s been a noticeable recovery and as of 2018, the highest rates of unemployment are to be found between 6.5-7%.

Perhaps the better measure of damaging unemployment is the long-term unemployment rate, defined as being of working age and seeking work for 12 months or more.

Long-term unemployment in Wales as generally kept pace with the rest of the UK, but prior to the Recession was slightly lower. Since 2015, the long-term unemployment rate has been consistently higher in Wales than in the rest of the UK.

The situation within Wales gives you a good idea of the resilience (or lack of) in the local economy. During the period 2010-2013, the long-term unemployment rate came close to hitting 50% in some Welsh local authorities and in places you might not have expected it to do so like Powys and the Vale of Glamorgan.

Unemployment rates for men are also generally higher than women and unemployment rates for women in Wales have been a few percentage points lower than the UK average, peaking at 8.3% in 2012. For men, the unemployment rate between 2009-2011 remained between 9.5 and 11% before recovering but still remaining higher than women.

One reason for this is that there are higher rates of men looking for work, with higher rates of economic inactivity amongst women (so they don’t count towards unemployment figures) – which I return to next.

Economic Inactivity

Economic inactivity is when a person of working age isn’t performing any work-related activity, whether that’s because they’re a stay-at-home parent, disabled or have simply given up looking for work. Full-time students are usually excluded when calculating the figure.

Economic inactivity rates in Wales are consistently higher than the UK average, though the gap has closed slightly since 2005 and as of March 2018, the Welsh rate was only 2% higher (19.8%) than the UK average (17.8%).

At a local authority level, the figures are consistently downwards, dropping faster in many Valleys local authorities than the rest of Wales. Five local authorities have seen double-digit percentage point drops in economic inactivity since 2005. The only local authorities which have seen lesser declines were either generally starting from a lower base in the first place or have higher rates of long-term disability.

The number of households where nobody of working age works has also fallen, though not quite as dramatically as economic inactivity rates; Ceredigion has actually seen an increase in workless households since 2005 – the only council area in Wales to do so. The decline in workless households has also generally been much lower in The Valleys than elsewhere in the country – a symptom of a long-term problem of economic inactivity.

Wales has the highest rate of claims for disability benefits by working-age people than any nation and region in Great Britain (Northern Ireland has its own welfare system). However, claimant rates have consistently fallen since the start of the century, with a more pronounced decline between 2008-2013. The current trend will likely see Wales lose it’s position at the top to the northeast of England within the next few years.

Why have the figures changed so dramatically?

Firstly, the cost of living has nudged people to seek work. Economic inactivity rates for women are up to 10-15 percentage points higher than men but have declined more sharply than men since 2005, suggesting that (disability aside) women who might otherwise have been stay-at-home parents or are otherwise the sole earner in a household have had to find work, or have been incentivised to do so via schemes like child and working tax credits.

Secondly, there may be a demographic cause. Many of the people who might’ve been counted as economically inactive in the past and moved onto long-term disability benefits – such as former miners and steelworkers who would’ve been in their late 40s/early 50s in the 1980s and 1990s – will have now retired and no longer be counted as working age, as the working age population of Wales falls. This might explain why economic inactivity rates have fallen faster than the proportion workless households.

Thirdly, the impact of austerity and welfare reform. It’s no coincidence that there’s been a sharp decline in disability benefit claimants in Wales and the north of England since the introduction of work capability assessments by Labour in 2008-2009. To successive UK governments, these haven’t been people; they’ve been red numbers on a balance sheet to be wiped off.

Self-Employment

Until around 2015, Wales had a higher self-employment rate (I’m counting it as businesses with “zero employees”) than the UK average; the UK has since caught up.

There’s a noticeable increase after the Great Recession, but the trend has been generally upward for a while. This can be interpreted in several ways.

Firstly, the “good” interpretation. High levels of self-employment could be a sign of an entrepreneurial spirit (contrary to stereotypes about the Welsh). The relatively high rates of self-employment might also be down to the fact in some parts of Wales there are a higher proportion of farmers who often work as a one man or one woman business.

Secondly, the “bad” interpretation. The increase may be due to the practice of recruitment agencies hiring employees on a self-employment arrangement (known as IR35 status) for tax reasons (aka. phoney self-employment, which has slowly been reformed), as well as the rise of the gig economy. Average self-employment incomes are often significantly lower than the employed (£240 a week in 2016) and they also can’t access many contributory and statutory employment benefits.

Zero Hour Contracts

Another pervasive phenomenon that’s developed over the last few years is the rise of so-called zero-hour contracts. A zero-hour contract is where an employee has no fixed number of working hours, meaning they might not have any work one week, then work a full shift the next week.

Since 2015, around 3% of the workforce in Wales have been employed on a zero hour contract; this is broadly in line with the UK average and in some recording period has actually been lower.

Women are more likely to be on a zero hours contract than men and this is perhaps no surprise as the use of these contracts is more common in sectors of the economy where more women are employed, in particular the care sector – where up to 25% of employees are on zero hours – and what are described as “elementary occupations” (i.e. cleaning, repetitive factory and retail work).

There’ve been several attempts by Plaid Cymru to have the use of zero hour contracts outlawed in the Welsh social care sector, but to date, the Welsh Government have rejected those calls; Labour’s reasoning being it would be better for these contracts to be banned across the UK as a whole.

Zero hours contracts may be advantageous in certain circumstances; such as when an employee needs to have flexible working (i.e. for education, training or parental responsibilities), but they’re also considered exploitative and leave employees with uncertainty over earnings which could lead to financial problems if they have no other regular income to rely upon (i.e. a partner’s earnings, access to in-work benefits).

Cross-border work patterns

In 2017, the vast majority (68%) of the 1.42million or so people in work in Wales worked in their home local authority. The rest of the workforce commutes out of their home local authority and for some it means leaving Wales too.

We’re often told that Wales has a “porous border” with England, and that’s demonstrated by the fact about 95,000 people in Wales work outside of Wales (the vast majority of them working in England, though some work even further afield).

The numbers commuting out of Wales have steadily increased since 2001, but as a proportion of the entireworkforce in Wales, the figure hasn’t increased as sharply and amounted to just 6.7% in 2017, reduced to a net-outflow of 3.7% once in-commuters from England are counted.

This is more likely to be significant locally than nationally, with out-commuting and in-commuting rates likely to be a lot higher in the northeast and in Powys than elsewhere. The only detailed figures on this are unreliable but suggest far more people in south Wales commute into Cardiff than to Bristol.

Perhaps that’s due to the Severn Crossing tolls and their removal might see commuting patterns change in the short-term, but cross-border rail services have been a thing for years and haven’t made much of a difference.

At a European level, cross-border commuting between Wales & England in terms of numbers is quite high and comparable to the French-Italian, French-German and French-Belgian border regions. It’s unclear what the figures are like in terms of percentage of employment because of their present unreliability, but it’s likely to be high locally, but relatively low nationally or regionally.

Qualifications & Skill Levels

On the skill levels of the Welsh workforce, there’s quite a bit of good news.

I’ve previously mentioned (Part VII; The Big Noes: Too Stupid) that Wales has a relatively high proportion of workers – even when compared within the UK – who’ve been educated to a minimum of university level or equivalent (Level 4; though this isn’t the same figure as degree-holders). While rates (37.4%) are below the UK average (40.9%), Wales places ahead of 7 of the nations and English regions.

The proportion of working age people in Wales with no qualifications has fallen by more than 40% since 2008 and the longer-term trend is likely to be even more positive.

Those that do get qualifications are generally getting higher ones too. Almost 60% of the Welsh working age population has the equivalent of an A-Level qualification – rising by almost a quarter since 2008, and a faster rise than those who have a minimum GCSE/school leaver qualification.